IKEA Company Positioning Strategy - Case Study Example

IKEA Company Positioning Strategy Student’s Name: Instructor’s Name Course Code and Name: University: Date Assignment is due: IKEA Company Positioning Strategy Competitive positioning is one of the greatest concerns of many organizations today. As the number of business organizations operating in an industry increases, the need arises for the management team to come up with outstanding strategies. These strategies should enable the concerned organization to gain competitive advantage over its competitors. Today, there are various strategies applied by organizations to gain a marketing edge (Wright et al. 1990, p. 23-28). In developing an effective, competitive strategy, an organization is required to carry out various generic marketing analyses including SWOT, marketing mix, and PORTER’S five analysis. This literature provides an overview of IKEA Company’s competitive strategy models. IKEA Company IKEA Company was founded in 1943 in Sweden by Ingvar Kamprad. The name IKEA is an acronym that comprises of the initials of the name of the founder, Ingvar Kamprad, the name of the firm where he was brought up (Elmtaryd) and the home parish of Agunnaryd. IKEA Company is a privately owned worldwide furnishing company. It operates in more than 42 countries and has more than 70,000 employees most of whom work in Europe. The company sells and designs ready-to assembles furniture like desks, beds, home accessories and appliances. IKEA Company is regarded as the largest furniture repair in the world. Company Mission and Philosophy For a company to achieve it objectives, it must have a mission and philosophy which forms part of the culture of the company. IKEA’s mission is to present a wide range of furnishing items of good function and design, excellent quality and durability at low prices. This will enable the majority of people to afford and buy products from company. The main target for the company is a customer who looks for value and is willing to work a little bit in serving themselves, transporting the furniture home and assembling the furniture at a considerable price (Nag, Hambrick & Chen 2005, p. 935–955). IKEA customers mainly come from a low to middle income family. IKEA’s business philosophy can be explained best using the four goals of the IKEA stores. The first goal is to act as an efficient and staffed sales mechanism. The second goal is to demonstrate the home furnishing solutions with home furnishing ideas. The third goal of the company is to serve as a qualified home furnishing specialist. The fourth aim is to offer a day out for the family. SWOT analysis A SWOT analysis assists to establish the strengths, weakness, opportunities, and threats of a company (Johnson & Scholes 1999, p. 55). The strengths of a company are advantageous positions, which companies have developed in its strategy. IKEA as a retail outlet and a multinational has several strengths. First, it has a prominent brand known all over the world, with numerous numbers of royal customers. Secondly, its capital and financial strengths are essential for the company’s expansion and financial undertakings. Thirdly, has a well motivated team of employees with corporate citizenship. In this case, the employees are devoted towards the organizational objectives and needs. There are two weaknesses facing IKEA Company. First, the company outlets are located in major cites which limits it market coverage in the middle and small sized towns. Secondly, the company advocates for standardized products across the world where it operates (Xiaofei 2005, p. 84-85). There are different preferences and styles preferred in various markets and hence some products may not be acceptable in some markets. On the other hand, IKEA has the opportunity of expanding its market in unexploited market across the world. In addition, the company may advocate for product differentiation depending on market demand instead of concentrating on standardization. IKEA is faced with two threat in it operations. First, there are other competitors dealing in different lines of products while IKEA concentrates on furniture. Such competitors can attract a large number of customers who make their shopping activities under one roof (Mintzberg, Quinn & Ghoshal 1999, p. 69-90). Secondly, IKEA has been in spotlights concerning the number of law suits by some if its employees on the violation of labor laws across the world. This likely to led into high rate of employees’ turnover. Marketing mix Marketing mix comprises of the product, price, promotion and distribution strategies. IKEA has established a strong marketing mix, which puts it in a position to gain competitive advantage over its competitors (Woo & Cooper 1982, p. 106–113). IKEA is the world leading furniture designer and distributor. The company is popular for its variety of products including beds, desks, and coffee tables, wardrobes, hall furniture, garden furniture, carpets, and book selves among others. The company has both the home and the office designed products to serve the needs of its esteemed customers. IKEA’s catalogue contains more than twelve thousand products to choose from, depending on customers’ needs. In addition, these products are manufactured under the control of the company and hence it controls its quality. As a result, IKEA products are of high quality with the required standards been observed. The distribution mix used by IKEA is one of the most effectively used across the world. There are three components to its distribution mix including factories, distribution centers and stores. IKEA has several factories established to design its products to control supply and ensure that the required standards are observed. The finished products which consist of ready to assemble products are then transferred into distribution centers across the world. There are more than twenty eight distribution centers lacerated in sixteen countries. The location of these distribution centers is guided by the strategic position of the country or city to supply the products to the store outlets. These distribution centers acts as a warehouse, as well as, a distribution centers within the region. For example, a distribution center located in Shanghai acts as a warehouse and a distribution center for the Asia region (Daqian 2005, p. 57-59). IKEA has well designed large retail outlet stores in major towns, in Europe, Asia, and United States of America. These outlets have two sections including the open and closed halls. In the open hall, the customers have the opportunity to obtain complete information about the products (Mulcaster 2004, p. 68–75). It also acts as a display to demonstrate how the assembled products will be. On the other hand, the closed hall acts as a warehouse to the outlet. Customers purchase their products at the stores at their unassembled state to do it at their point of use. In this case, the products are distributed from the factories to the distribution centers and finally they reach the consumer. IKEA sometimes skips distribution centers in its distribution chain. In this case, the products move from factories to the stores and finally to the customer. This takes place when a store is near to the factory, and it is uneconomical to take them to distribution centers. This is considered as a direct delivery or a distribution strategy. Price is one of the most sensitive components of the marketing mix. Price is immensely essential to both the customer and the organization (Gronroos 1994, p. 4–32.). The customers’ desire is to get the value of the price they pay for in change of products they take home. An organization uses the price to cover up expenses and cost of production while earning a margin. IKEA is also a known price leading furniture outlet across the world. Establishing it own factories and distribution centers have assisted the company to achieve the affordable price strategy. In this case, the company captures a large pool of customers even from low and middle income earners. IKEA’s promotion mix consists of two components. These components include the advertisement and online marketing. IKEA advertisement components consist of mass media through national and international televisions, bill boards, and video games among others. IKEA television advertisements have received several international awards notably in the year 1994, 2002, and 2007. In addition, the company has recently launched the online marketing strategy. In this case, customers have an opportunity to view the company’s catalogue containing more than twelve thousand products. This strategy targets young and middle aged customer who access internet services on daily bases. This group consists of largest fraction of the world population and disposable income. Porter’s five forces analysis application Porter’s five forces are marketing management strategy developed with the aim of gaining competitive advantage in a given industry. These forces consist of buyers’ power, suppliers bargaining power, threat of substitutes, entry barriers and entry of competitors. Buyers’ bargaining power is the ability of the buyers’ to dictate on the quality and price of products in an industry. To reduce the threat of buyers’ bargaining power, a company variety of products and at affordable prices (Markides 1999, p. 55–63). Suppliers’ bargaining power is their ability to control prices of supplies and quantity supply. This may reduces the company’s profits and product competitiveness. A company should come up with strategies to mitigate this influence. The company can look for various supplies or develop and a vertical relationship with reliable suppliers. With numerous numbers of suppliers, the company is assured of competitive price of supplies at the required quantity and quality. The other force is the threat of threat of substitutes. Substitutes are products which can be used to satisfy a want at the same level of utility. In this case, a customer may choose among these products to serve to satisfy his needs. An entry of a substitute to a market may result into reduced sales and profits for the existing product (Ferrell & Hartline 2010, p. 493- 495). A company should strive to ensure that there is a pool of royal customers to its products despite an entry of a substitute. The other force demonstrated by porter is the entry barriers. This force affects an organization particularly when penetrating a new market. Some companies may dominate the market and strive to maintain monopoly or oligopolistic. An organization with the aim of entering such a market should develop an immensely strong penetration strategy to out winner the entrant barriers. Lastly, entry of competitors is another force which influences marketers’ strategies. New entrants bring about instability in demand and supply, in a market. The increased supply forces the existing prices to reduce to maintain equilibrium in the market. The entrant comes with new technology and modification of products, which can entirely influence the market performance to existing products. In the attempt to overcome the five forces IKEA has developed effective strategies including cost leadership, product differentiation, and focus. The cost leadership of IKEA is achieved by the fact that it has established its own factories which reduce the cost of purchases, and hence reflect on prices changed on its products. The cost leadership enables the company to reduce the effect of buyers bargaining power who remain royal affordable products. On the other hand, cost leadership through it self established logistics reduces the suppliers bargaining power. Lastly, the price leadership reduces the threat of substitutes and rivalry in those affordable prices on products makes IKEA products to out compete their competitors (Zhi 2011, p. 1- 34). The other strategy applied by IKEA in its operations is product differentiation. To achieve this strategy the company produces a variety of unique, high quality and low price charged products as compared with its competitors. IKEA owns and manage its own factories in coming up with the differentiated products (Czinkota & Ronkainen 2007, p. 172- 174). As a result, the IKEA have been in a position to overcome the influence of the porter’s five forces. Focus is a strategic concept in which an organization concentrates on its comparatively advantaged line of products. IKEA is an international organization concentrating on furniture production and distribution to final consumers. This enhances the company’s ability to cut down the cost of operation and achieve differentiation as it specializes on one line of products (Benshun 2003, p. 28-30). As a result, IKEA has been able to mitigate buyers’ and suppliers’ bargaining power. In addition, the company understands fully how the market than those operating in unspecialized market. Habitat Company is a British company dealing in furnishes and mostly concentrated within the Britain high streets. The company decided to produce its own products, establish its own distribution centers and stores but, failed in its strategy while IKEA succeeded. There are two reasons as two why the company did not perform as IKEA did. First, the company production was not as massive as that of IKEA. As a result, the cost of production remained high which reflected into high prices of products; they were unaffordable to low and middle income earners. Secondly, despite its own controlled production and distribution logistics, the quality of its products were much lower compared to those of IKEA. As a result, the company did not create a pool of royal customers and hence, low amount of sales and profits (McGuirk 2011). In conclusion, strategic positioning is an essential but, complex process. The process requires proper leadership and planning to ensure that the chosen strategy is the most appropriate. It is highly advisable for the management team of an organization should undertake SWOT analysis, porter’s five forces concepts and strategic positioning. In addition, the marketing mix of an organization should be developed based on the knowledge gathered on SWOT and Porter’s five forces. IKEA is one of the existing companies which have applied effective positioning strategies to come out successfully. 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